Unit 3.1

1. Unit 3.1 Why do businesses locate where they do?

2. In this unit you will find out the answers to the following questions: Why is location important? What are the key factors which influence location? Where does the money come from to finance a business? What are the main types of internal and external finance available to a business?

3. LOCATION OF A BUSINESS Businesses will locate: Close to their customers Away from competitors Where costs for land or rent are affordable Close to good road and rail links Where there is car parking Close to suppliers of raw materials

4. Businesses need to think about the following factors when deciding where to locate: What type of product does it plan to produce and sell? Is there any competition? What location criteria are relevant for the business activity to be undertaken? Are there any potential customers for the product? Will the product sell in the proposed market place? What are the set up and operational costs? Can it make a profit? A business will fail if it does not address these issues!!!

5. What location criteria can be important to a business?

6. Where does the money come from to finance a business? All businesses need money (finance) in order to set up and run a business. This money will be used to pay for a range of goods and services which they will require such as: Land and premises Machinery and fittings Vehicles Raw materials Goods for resale Wages Rent and rates Light and heat Insurance

7. Where does the money come from to finance a business? (cont) A business needs money in order to: get started in the first place; pay for its running costs; pay off its debts (if any); allow it to grow/expand.

8. Where does the money come from to finance a business? (Cont) There are 2 main ways in which a business can get money (finance). These are through:

11. Where does the money come from to finance a business? (Cont) EU funding for member countries, e.g. in areas of high unemployment; Credit from suppliers � �buy now pay later�.

12. Differences between Overdrafts and Loans Overdrafts Flexible amount � up to an agreed limit Flexible timescale � usually short Intended as short-term funding Loans Fixed amount Fixed timescale � but can be extended Intended as long-term funding

14. Sole Traders/Partnership Owners who are sole traders can: - invest their own personal savings in their business; - use this capital to purchase the things needed to get the business started , e.g. premises, vehicles, stock. These are known as the assets of the business.

15. Sole Traders/Partnership (Cont) Owners of a partnership can: - invest an agreed amount of capital in the business; - can invest different amounts of capital in the business. In both cases profits can be: - taken out the business by the owner(s); - reinvested in the business (e.g. to buy assets) so that it can do better in the future.

16. Sole Traders/Partnership (Cont) Operating as a sole trader or as a partner is a risk. If the business fails then the owners (soles traders and partners) can lose everything. Sole Traders and Partnerships can often find it difficult to borrow money because they tend to be small in size.

17. Sole Traders/Partnership (Cont) Their main forms of borrowing are therefore: loans from family or friends; business loans or overdraft from the bank; mortgage on the business property offered by building societies.

18. Private Limited Company Owners of a private limited company can: invest some money of their own savings in the business in exchange for a share of it. The value of their share of the business depends upon the amount of money they invest and they can only withdraw their capital from the business if they receive the permission of the owners to do so.

19. Private Limited Company (Cont) Any profit made can be: taken out of the business by the owners eg, they split all the profits into a dividend per owner; reinvested in the business; partly taken out as a dividend and partly reinvested.

20. Public Limited Company (plc) Owners in a public limited company can: own shares in the company; are not involved in the day-to-day running of the business; hope the company will be successful in order that it can pay them high dividends. Public limited companies - plc � issue 2 types of shares: Ordinary shares which do not guarantee a dividend Preference shares which have a guaranteed dividend

21. Public Limited Company (plc) (Cont) Public limited companies are normally large businesses and are able to secure a loan more easily than other types of business organisations. Their main form of borrowing is: banks who offer a business loan or overdraft; building societies who may offer a mortgage or property; issuing debentures (long-term loans) which have a fixed rate of interest and are usually repayable 20-25 years after date of issue.

23. Internally Generated Finance The main source of internal finance is profit, since profit is the difference between income received and money paid out. The amount of profit made by a business will depend on several factors: level of turnover; size of mark-up; efficiency in dealing with credit transactions; control of costs.

24. Externally Generated Finance The main types of external finance for a business include:

25. The Government can influence where a business locates. The main central government policies which provide public funding to aid depressed areas include: Assisted Areas Regional Selective Assistance Regional Enterprise Grants Enterprise Zones Urban Development Corporations Training and Enterprise Councils

26. LOCAL GOVERNMENT SUPPORT Promoting business is now a major objective of local councils. The range of benefits on offer to businesses by local councils include: Grants for starting up a business Grants for research and development Job creation grants Relocation grants Free rent and/or rates Business advice (Scottish Enterprise) Loans with reduced interest charges Help to find finance Help to find premises

27. The European Union (EU) can also affect where a business locates

29. GLOBALISATION This has created a single world wide market place which is dominated by multi-national businesses Globalisation is possible because of: Developments in communications Developments in transportation Decline in barriers to trade Developing markets Pacific economies The global market

30. MULTI-NATIONALS Multi-nationals operate overseas generally in a range of products. Often their size is a result of takeovers and mergers of businesses in other countries. This type of expansion is aimed at controlling: Production facilities Distribution outlets Office space Operating in a number of countries allows multi-nationals to: Switch production from plant to plant and country to country when profit levels change Move into production where cheap labour and materials are available Locate where tax advantages can be gained